RegTech market episode 1: a growing rich dish

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Do you know about RegTech?

Names don’t always fit what they mean. But this is not the case of RegTech. This word – which literally stands for Regulatory Technology – expresses clearly the core of the market that identifies. The RegTech is the business field which is dedicated to that kind of technological solutions that can be applied to all regulatory issues which are increasingly affecting the banking & finance sector.

Especially since the 2008 crisis, financial institutions need to face an ever-increasing number of mandatory compliance operations, which constitute an high cost item, but doesn’t generate any revenue. This critical issue is compounded by the fact that – in Europe at least – banks are lacking resources and tools to keep up with the ever-growing regulations changes and updates. This is why financial companies all around the world are more and more interested in finding high-tech solutions to carry out these operations in an automatic way.

A bigger and bigger market

As RegTech products are currently the most promising way to help humans solve compliance tasks on time, reducing the risk of penalties from the controller units and avoiding degradation of reputation towards customers, the most interesting technological solutions to face this situation are the AI-based ones. The growing volume of regulations and operational complexity are pushing banks – all around the world – to invest in Artificial Intelligence products, in order to reduce the costs which are related to the risks of non-compliance management and to speed up their processes, which are not sustainable at the moment.

Just to give some figures, the European financial system (UEM) costs for compliance operations for 2019 are estimated to exceed 25 billion euros and they are expected to keep growing in the next three years. Besides, taking into account only the activities needed to keep up with regulations and their updates, extract impact analyses and create detailed reports – which are essential for companies’ CDA to take compliance decisions -, the RegTech market segment is expected to amount to 2,9 billion euros (according to a report by the European Commission, February 2020).

So, that’s it?

Actually not. All the issues that involve the banking & finance market can be extended to any social field which is affected by regulations. Without expanding too far this consideration, we can start from every economic entity: just think of the horizontal legislations, such as the fiscal one, which has an impact on all the economic entities.

Anyway, there are surely economic fields where the regulations impact is higher than in others. From this point of view the financial system has suffered a growing impact in the last few years precisely because of the international community’s intention to create a controls system in order to avoid events like the ones that gave place to the global financial crisis in 2008.

But also the health sector – mostly following the COVID pandemic – and the internet world – mostly regarding users’ data and their privacy – are heavily affected by legal and regulatory issues. This is why the RegTech – and all of the connected business – is growing and it will be at the centre of the economic dynamics in the next few years. And maybe more.

Follow our blog post series about the RegTech market to learn more about this growing new world, starting from next episode that will give an in-depth look at the European and Italian financial systems.

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